Budgeting 101: Save, pay down debt and achieve your goals

Want to save money, pay down debt, achieve your financial goals faster and live well along the way? These budgeting tips for beginners will show you how to make a budget that works and reveal the secrets to keeping your budget—and financial goals—on track.

The benefits of budgeting
Budgeting is boring, right? True, budgeting itself might not make for riveting conversation, but the goals it can help you achieve most certainly do. Holidays, a house deposit, having a baby, launching a business, retiring in comfort, shopping without guilt, and so on, are all benefits that can come from budgeting.

What is a budget?
Imagine you were heading off on a long trip across the country. You wouldn’t just start driving. You would first look at a map to plan your route. You’d look for rest stops, petrol stations, sights to see along the way. The alternative, without a map or GPS to guide you, is that you could take the long way, go in the wrong direction or go nowhere at all.

The same can be said about your financial goals: the best chance you have of achieving them is to have a plan. Yet the majority of people have no financial map at all. Money comes in and money goes out, which can lead to a lot of driving in circles!

In contrast, a good budget is like a map for your money. It will show you the fastest, most efficient path to reach your goals. If something unexpected happens along the way (eg. your cat needs emergency surgery), your budget can even help to recalculate the route.

Of course, if you’re new to budgeting you might be wondering if this money mapping is going to be time consuming or difficult. We won’t lie—creating a workable budget does take a little time. But we promise the results are worth it. We also promise that budgeting reduces financial stress and uncertainty, which gives you more financial freedom in your life, not less.

Budgeting tip #1: Start with why
Why do you want to make a budget? Are you saving for something special? Trying to pay down debt faster? Perhaps you’re tired of living week to week or sick of running out of cash before payday. There are a million good reasons to manage your money better with a budget.

Budgeting tip #2: Don’t overestimate your income
Your income is any money you receive or get paid throughout the year. As well as salary and wage payments, you may also have income from other sources, such as child support, a pension or dividends. If you have joint finances, make sure you include you and your partner’s income.

What if your income is inconsistent? Casual and contract work, commission-based sales, self-employment and other types of work can result in pay cheques that go up and down. This makes budgeting more challenging because there isn’t a set amount of money coming into your budget every pay cycle. If this describes your situation, the safest approach is to base your income on your lowest paycheque or monthly average.

Budgeting tip #3: Don’t underestimate your expenses
A common budgeting mistake is to include only essential, fixed expenses in your budget (eg. rent/mortgage, groceries, transport, utilities, insurance etc). However, for your budget to be realistic, it needs to include all of your discretionary expenses too.

Essential expenses describe items you need to live. Think needs: housing, food, transport, medical and electricity bills.

Everything else you spend money on are discretionary expenses. Think wants: restaurant meals, coffee, fashion, tech gadgets, memberships, subscriptions, home renovations, trumpet lessons, and so on.

It’s these little discretionary expenses that can add up quickly. The best way to uncover them is to go through your debit and credit card statements for the last three to six months. Use two different coloured highlighter pens to code your expenses as essential (needs) or discretionary (nice to have but not necessary).

Budgeting tip #4: Take the whole year into account
A common budgeting mistake is for people to base their budget on their pay cycle or the calendar month. Budgeting your monthly expenses and income is a good start, but the challenge comes when an annual or quarterly bill pops up. Suddenly, there is not enough monthly income to cover the budget’s usual monthly expenses plus, for example, annual car registration.

By creating a 12-month budget, your entire year of finances is mapped out. For a lot of people, this is where they discover why their finances feel like ‘one step forward and two steps back’.

On a weekly basis, it looks like they live within their means. But it’s the annual accumulative effects of kids’ birthdays, Christmas presents, car rego and servicing, power and water bills, council rates, and so on, that make it impossible to save.

Budgeting tip #5: Prioritise your expenses
At MyBudget, we organise our clients’ expenses into ‘streams.’ These get prioritised in order of importance. You can do the same with your budget. For example, essential living expenses (eg. rent/mortgage, electricity, petrol, groceries), will take priority over ‘Netflix’ or ‘Takeaway Food’.

Ranking your expenses is an excellent way to make sure you meet your most important obligations first. It can also reveal where you can trim the fat. New budgeters often ask themselves questions like ‘do I really need Foxtel, Netflix, Disney-Plus, Stan and Kayo?’

Budgeting tip #6: Build flexibility into your budget
You know the biggest challenge with budgeting? Life! Just when everything is going well, your car breaks down, water heater fails, or a global pandemic hits. This is why you need to build flexibility into your budget.

The way to create a flexible budget is with savings. This is money you set aside regularly that builds up into an emergency fund. It should have its own stream in your budget. To differentiate it from other saving goals, you should call it something like ‘Emergency Fund’, ‘Rainy Day Savings’, or ‘Buffer Money’.

Keep this money in a separate account or subaccount for safekeeping. It doesn’t matter if your savings start out small. Even just $5 to $10 a week will snowball over time. You can also top up your emergency savings with one-off payments, such as a tax refund, bonus or birthday money.

Budgeting tip #7: Budgets that don’t balance
A balanced budget is a budget where your income is equal to or greater than your expenses. With budgets that don’t balance there is more money going out than coming in. The danger in this case is that either your savings are going down or your debt is going up. This is how a debt spiral can begin.

So, what is the right approach with a budget that won’t balance? The first step is to congratulate yourself. Instead of hiding your head in the sand, by creating a budget you have a powerful money management tool that can help you to understand, explore and fix your financial situation.

Start by making changes to your budget to see what effect they have. These are all scenarios that can be explored with your budget:
● What if you were to trim your expenses?
● What if you were to refinance or consolidate your debts?
● What if you were to negotiate lower payments with your creditors?
● Should you sell an asset?
● What if you added an income stream to your budget?

Importantly, unlike Band-Aid measures, budgeting helps to uncover and fix the root of financial problems. And by getting to the underlying cause, you have the opportunity to stop them from happening again. In fact, with the right budgeting system, you have the foundation for lifelong financial success!

MyBudget is the worry-free way to manage your money

Whatever your financial goals, there is a MyBudget solution to help you reach them.

To find out more, call 1300 300 922 or enquire online today.